What is Schedule J: Income Averaging for Farmers and Fishermen

Updated for Tax Year 2014

OVERVIEW

Income averaging for farmers and fishermen provides a way to balance an income tax burden over several years, reducing the effects of both lean and bounty years. Schedule J is the Internal Revenue Service form used when you want to average your fishing or farming income.

Get every deduction you deserve

TurboTax Deluxe searches more than 350 tax deductions and credits so you get your maximum refund, guaranteed.

When income averaging is beneficial

You may wish to consider income averaging if your income from fishing and farming activities for the current tax year is substantially higher than your income from any source over the previous three years. Electing to use Schedule J to average your income allows you to balance your current tax bracket with the brackets from previous years, so you’re not taxed at a significantly higher rate in the current year. Income from the three previous years, referred to as the base years, doesn’t have to originate from farming or fishing activity.

Farming businesses that qualify for income averaging

The IRS defines a farming business as one involved in the trade of cultivating land or the raising or harvesting of any agricultural or horticultural commodity. This excludes buying and reselling plants or animals raised by someone else, or the harvesting under contract of agricultural or horticultural commodities grown by someone else. Leasing land to a tenant engaged in farming is allowed for income averaging, as long as lease payments are based on a share of the tenant's production, rather than a fixed fee. This agreement also must be in place before the tenant starts farming operations.

Fishing businesses and income averaging

Fishing business refers to the catching, taking or harvesting of finfish, mollusks, crustaceans, marine animal and plant life, except marine mammals and birds.

Crew members on commercial fishing vessels qualify only if their income is based on a share of the catch.

If you own a fishing boat and lease it, you are eligible for income averaging only if lease arrangements are made as a share of the catch.

If you are involved in settlement from Exxon Valdez litigation as a plaintiff or beneficiary, you may be considered eligible for fishing income averaging.

Using elected farm income with Schedule J

You're not required to use all of your taxable farm and fishing income from the current year for income averaging, and it may be better to use only a portion. Whatever portion of your income you include, it’s called elected farm income on Schedule J, and it can include gain or loss from the sale of property and assets used in your business. It cannot exceed the taxable income reported on line 43 of your Form 1040. Schedule J and its instructions guide you through calculation of tax on your current year elected farm income as well as the three base years to calculate your averaged income.

Remember, you don’t have to do any calculations on your own when you use TurboTax to prepare and file your taxes. Simply answer the questions we provide, and we’ll make sure your answers go on the appropriate tax forms.

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.

Try for Free/Pay When You File: TurboTax Online pricing is based on your tax situation and varies by product. Actual prices are determined at the time of print or e-file and are subject to change without notice.

TurboTax CD/Download products: Price includes tax preparation and printing of federal tax returns and free federal efile of up to 5 federal tax returns. Additional fees apply for efiling state returns. E-file fees do not apply to New York state returns. Prices subject to change without notice.

TurboTax Mobile: Actual prices are determined at the time of print or efile and are subject to change without notice. Come back here before you file to confirm that the price has not changed, especially if it's been a while since you downloaded this app.

Pay for TurboTax out of your federal refund: A $34.99 Refund Processing Service fee applies to this payment method. Prices are subject to change without notice.

About our TurboTax Product Experts: Customer service and product support (phone or chat) vary by time of year. Phone support not included with Free Edition.

About our credentialed tax experts: Live tax advice service is available for your toughest tax questions; fees may apply. Service, experience levels, hours of operation and availability vary, and are subject to restriction and change without notice. Click here for full terms and conditions. Not available for TurboTax Business customers.

Get up to 10% on top of your federal refund: Amazon.com Gift Card offer is for federal refunds only. Limits apply ($2000 per e-card, maximum $10,000 per customer). Offer available only for TurboTax Online (except Federal Free Edition) or CD/download versions sold and shipped, or downloaded directly from Intuit or Amazon. Except as required by law, Amazon.com Gift Cards cannot be canceled, transferred for value or redeemed for cash.

#1 best-selling tax software: Based on aggregated sales data for all tax year 2013 TurboTax products.

4.8 out of 5 stars: Average based on customer ratings on TurboTax.com for TurboTax Online and CD/download products tax year 2014, as of January 2015.

Most Popular: TurboTax Deluxe is our most popular product among TurboTax Online users with more complex tax situations.

TurboTax CD/Download priority phone support: Priority phone support for TurboTax CD/Download Premier and Home & Business is accessible exclusively via the TurboTax.com Help Center.

Benefit Assist: After you file, TurboTax automatically shows you a full list of government benefits you may qualify for, like Food Stamps or reduced phone & utilities. Plus, we help you apply, saving you time and making it easier than ever to get more money! Estimate based on calculation of Benefit Assist users from tax year 2013 and published reports of average benefit and savings amounts from federal and state programs. Actual amounts and qualifications based on your individual situation; some individuals will not qualify. Feature may not be available for all customers.

Simplified State Experience: New, simplified state tax preparation available for most filers.

Eligibility for $25 cash back for returning Deluxe customers: Customers who have completed their 2013 taxes in TurboTax Deluxe (CD or download), and have completed their 2014 taxes in either TurboTax Premier or TurboTax Home & Business (CD or download), and apply here before 11:59PM PDT April 20, 2015, are eligible for $25 back. 2014 TurboTax Advantage users are ineligible for this offer. Terms and conditions are subject to change without notice.

$0 Upgrade Offer: Valid for customers who filed their 2013 taxes with TurboTax Deluxe (CD or download), completed prior year data transfer this year, and encounter an upgrade to either 2014 TurboTax Premier or 2014 TurboTax Home & Business (CD or download). Valid February 6, 2015 through April 20, 2015. TurboTax Advantage users are ineligible for this offer. This offer may not be combined with our $25 cash back offer. Terms and conditions are subject to change without notice.